Market Drivers for March 13 2014

Euro hits yearly highs as stops triggered

AU employment beats forecasts markedly

Nikkei -0.10% Europe 0.08%

Oil $98/bbl

Gold $1373/oz.

Europe and Asia:

AUD Employment Change 47.3K vs. 15.3K
CNY IP 8.6% vs 9.5%
CNY 17.9% vs. 19.5%
CNY Fixed Asset Investment 11.8% vs. 13.5%

North America:

USD Retail Sales 8:30 AM
USD Weekly Jobless 8:30 AM
USD Business Inventories 10:00 AM

The euro hit fresh yearly highs in mid-morning European trade today clearing the 1.3950 barrier as slightly better inflation data from France and improving Retail Sales from Spain continued to support the market’s view that ECB will not take any additional easing steps in the foreseeable future. The pair tore through the topside triggering short covering stops and now looks ready to make an assault on the psychologically important 1.4000 figure.

The rise in the euro has taken many analysts by surprise given the lackluster economic environment in the region. However, the pair has been helped by strong portfolio flows and a rock solid Current account surplus driven higher by the strong performance of the German economy which dominates the economic activity in the monetary union. So far the appreciation in the exchange rate has not had any significant drag on Germany’s export sector. However, if the pair continues to climb and trades through the 1.4000 level the outcry from the region’s corporate sector is sure to rise and the ECB may finally take note of the appreciation in the unit.

Meanwhile in Australia the employment data soared past the estimates coming in at more than three times the consensus view at 47K versus 15K eyed. This was the 7th out of the past 8 months that markets have completely missed the forecast and the volatility is less a testament to the underlying labor trends and more a function of the changing methodologies of the Australian Bureau of Statistics.

The ABS noted that, “The incoming rotation group for February 2014 had a higher proportion of employed persons and persons in the labour force (i.e. less persons not in the labour force) than the sample it replaced. This incoming rotation group contributed, in original terms, 37% of the increase in total employment and 29% of the decrease in persons not in the labour force in February 2014. The trend estimates provide a better measure of the underlying level and direction of the series especially when there are significant rotation group effects.”

Regardless of the underlying dynamics, the Australian labor data clearly suggests that employment remains stable at the very least and therefore the RBA is likely to maintain its neutral stance for the foreseeable future. The Aussie responded in kind rising nearly a cent off the session lows as it traded through the 9080 level. Not even the lackluster data out of China which showed material slowdown in Industrial Production, Retail Sales and Fixed Asset investment, could halt the rally in AUD/USD as the pair remained well bid through the night.

In North America today, the eco calendar finally picks up pace with US Retail Sales and weekly jobless claims on the docket. The market is looking for a modest 0.2% rise given the very tough winter weather conditions in February – and any miss will likely be dismissed as a seasonal factor. However if the data does surprise to the upside it could provide some modest support to USD/JPY which has been sliding lower since Friday’s NFP report as a variety of Fed speaker reflected caution on the US economy. A beat today could push USD/JPY back to 103.00 and help EUR/JPY rally as well.

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